Following the breakaway of the JUI (F)
from the ruling coalition, no positive response from Nawaz Sharif to the
president Zardari's appeal seeking PML (N) support in passage of Reformed
General Sales Tax (RGST) by the National Assembly, and growing opposition from
all directions, the government has reportedly decided to defer the RGST passage.
Instead, the government would seek six to nine months extension in the standby
loan agreement program of the International Monetary Fund (IMF), which is
expiring on December 31 and its renewal has been linked with the passage of RGST.

According to the sources, the ruling
PPP has been making frantic efforts for the past many months to woo support for
this controversial piece of legislation from the parliamentarians-both from the
coalition partners and the opposition benches.

Despite offering many concessions in
return, no breakthrough could be made. According to them the RGST, if levied,
would bring yet another wave of inflation, which would be unbearable for the
masses whose lives have already been made miserable because of over 100 per cent
increase in the cost of living during the last 2 years. If they support RGST
they would not be able to face the public. They contended that the government
could easily raise Rs70 to 80 billion intended to raise through RGST by checking
and controlling the rampant corruption all-around. Surprisingly, however, these
coalition partners, except the MQM, did not make any mention or demand that
instead of RGST the government should levy tax on income from agriculture.
Reason being simple that many amongst them also belong to the same class
dominating our national and provincial assemblies.

However, the government has still not
lost all hopes and therefore has not yet abandoned the idea of RGST. They are
only asking for a few more months from the IMF to meet this condition. It is
equally surprising-rather amazing-as to why an international agency like the IMF
should insist on RGST to raise the revenues of Pakistan in order to cut its
budget deficit? Why they not insist on withdrawing the very unjustified
exemption to the income from agriculture? According to the experts, if this
exemption is withdrawn, it would add to the revenues of Pakistan by about Rs200
billion annually at the present rate of taxation.

The proposal of RGST is being rightly
criticized and resisted by the people of Pakistan. There are many cogent reasons
for that besides already crippling inflation. Firstly, thanks to over vigilant
media, they now know that the political leadership of the country with the
exception of a few is not paying their taxes. When they do not pay taxes, how
they can ask the people of Pakistan to pay more? Secondly, the feudal class
earning billions from agriculture has remained outside direct tax net. Failure
in taxing agriculture has been the major cause of resistance. Thirdly, the RGST
was to be implemented in an environment of rising inflation, caused by surging
food and fuel prices with maximum discomfort to the poor and the fixed income
groups.

Fear of further inflation has unnerved
the common person. Thirdly, rampant corruption in the FBR deprives the country
of a large chunk of its revenues. No serious effort has been apparently made to
curb or minimize corruption in this institution. Fourthly, no serious effort
seems to have been made to address the issue of the bleeding public sector
enterprises, which continue to get money from the budget to cover their losses
and lastly the government is making no effort to control its reckless
expenditure and is making no effort to tighten its own belt. What moral
justification does the government have to introduce the RGST with almost 100
ministers and advisors in its fold?

There are options better than the RGST
to achieve the objectives, which its authors want to achieve. Increased
documentation of national economy and tax to GDP ratio are the two major stated
objectives of the government for introducing this bill. The RGST blueprint,
however, is apparently in clear conflict with the stated objectives. To say the
least, much easier options for achieving better documentation and higher revenue
yields remain off the radar screen of the policy makers. Notwithstanding
opposition parties demand for plugging the corruption and inefficiency in the
tax administration to generate Rs500 to 600 billion per annum as an alternate to
RGST, as estimated by the former Finance Minister, Shaukat Tarin, the turnover
threshold for registered RGST payers would only act against the documentation
objective.

International experiences suggest that
better revenue outcomes are easier to achieve when the taxpayer sees taxation as
fair and equitable. This is generally done through maximum direct taxation on
the basis of income earned by citizens across the sectors and segments of the
economy, unlike Pakistan where direct taxation (including withholding tax)
accounts for less than 35 per cent of the total revenues.

Direct taxes account only of 3.5 per
cent of GDP, in a tax to GDP ratio of 9 per cent. The RGST would further reduce
the contribution of direct taxes to the GDP and increase the burden and share of
indirect taxes. The principle of equitable, just and fair taxation could be
achieved only if incomes of more than Rs300,000 per annum earned by people in
agriculture, real estate, stock markets and other walks of life are taxed like
the salaried class.